The Transmission Mechanism of Financial Shocks
Edited by Satoshi Inomata
Chapter 5: The Impact of the Financial Crisis on Factory Asia
Kazunobu Hayakawa INTRODUCTION 1. Due to the recent financial crisis, consumer demand has plummeted remarkably all over the world. Such a decrease gradually led to a stop in the running of ‘Factory Asia’.1 One of the key sources of recent Asian economic development was the expansion of exports in both consumption and intermediate products. Asia formed sophisticated international production networks in a period of dramatic activity, including the so-called ‘Asian Miracle’ period (the former half of the 1990s) and serious currency crisis in 1997–1998 (Kimura, 2006). It churned out millions of different consumption products with world-beating price–quality ratios by sourcing billions of different parts and components from plants spread across a dozen nations in Asia. Due to the recent decrease in global consumer demand, however, such products now seem to have nowhere to go. The impacts of the changes in demand on Factory Asia have been explored by employing the well-known gravity equation. By applying gravity equations to bilateral trade data at the industrial level, some researchers have found more active trade in parts and components in country-pairs with one of the countries having a large GDP, either as an importer or an exporter (see, for example, Athukorala and Yamashita, 2006; Kimura et al., 2007). Also, Hayakawa (2007) examines what contributed to the trade growth of intermediate machinery goods in Asia in the 1990s. His empirical results suggest that the reduction in border barriers and the increase in production of intermediate goods are important factors for the rapid...
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